Are members of the New York State Deferred Compensation Board covered by the State for legal defense and indemnification if they get sued?

Plain-English summary

The New York State Deferred Compensation Board administers the State's deferred compensation plan for State employees, the section 457 plan equivalent for state government. Board members include one appointee each by the Governor, Senate Temporary President, and Assembly Speaker. The Board's administrative officer asked the AG whether Board members are entitled to defense and indemnification under Public Officers Law § 17 if they get sued for actions taken in their Board capacity.

The AG said yes. Section 17 protects State "employees" against personal liability for acts within their public duties, including paying for their legal defense and indemnifying them against judgments. The definition of "employee" is broad: "any person holding a position by election, appointment or employment in the service of the state, whether or not compensated." The question was whether Board members fit that definition.

The structural classification of the Board was the key question. If it is a public benefit corporation, its members are not State employees and Public Officers Law § 17 does not protect them unless the public benefit corporation's enabling statute extends § 17 protection (per Op Atty Gen No. 89-F13). If it is part of the State, its members are in the State's service and § 17 applies directly.

The AG ran through the public benefit corporation indicators and found none. General Construction Law § 66 defines public corporations as municipal, district, or public benefit. The Board is none of those. A public benefit corporation under § 66(4) is one "organized to construct or operate a public improvement," and the Board does not fit. The Legislature has expressly designated other entities as public benefit corporations (the various Public Authorities Law and Arts and Cultural Affairs Law citations); it has not done so for the Deferred Compensation Board.

Other indicators support State-employee classification: the Board has no separate enabling legislation as a public benefit corporation; its funding comes from a State purposes appropriation in the State budget; it uses staff from the Governor's Office of Employee Relations and the Senate and Assembly. The Board's purpose (administering a benefit for State employees, integral to State employment terms) is itself State service.

So Board members are "in the service of the State" and § 17 applies. They get defense and indemnification, with the procedural footnote that they must comply with § 17(4)'s notice requirements (timely notification, surrender of defense control, cooperation with the State).

Currency note

This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why does the public benefit corporation classification matter?

Public benefit corporations are legally separate from the State (New York State Chapter v Thruway Authority makes that point at the Court of Appeals level). They have their own borrowing capacity, their own liability exposure, and their own indemnification arrangements. If the Deferred Compensation Board had been a PBC, the State would not be paying for its members' defense and indemnification absent specific authorization in the PBC's enabling act.

What does Public Officers Law § 17 actually cover?

It covers civil legal actions arising from acts done in the performance of the employee's State duties. The State pays for defense counsel (often the AG's office handles it). If a judgment is entered against the employee personally, the State indemnifies against the judgment. The protection does not extend to intentional wrongdoing or to acts outside the scope of duty.

What about Board members who are also State employees?

They get § 17 coverage in both capacities. Their service on the Board is one set of duties; their day job is another. § 17 applies to both, and the State's defense obligation extends to claims arising in either role.

What if the Board approves an investment that goes wrong?

§ 17 protects against personal liability for acts within the scope of Board duties. If an investment selection is within the Board's regulatory authority and is made through normal decisional processes, § 17 coverage attaches. Gross negligence or intentional misconduct could still expose Board members personally.

Do the Board's outside contractors get § 17 coverage?

No. § 17 applies to State employees, not to independent contractors. The Board's legal, administrative, and financial service providers are typically independent contractors who manage their own liability exposure (often through their own insurance and indemnity provisions).

Background and statutory framework

Public Officers Law § 17 is the centerpiece of New York's State employee protection regime, enacted in 1979 to consolidate and clarify various defense and indemnification rules. It defines "employee" broadly and the State's defense obligation correspondingly broadly.

The New York State Deferred Compensation Board was created by Chapter 547 of the Laws of 1982 to administer the State's section 457 deferred compensation plan, which lets State employees defer salary into investment accounts before federal income tax. The Board sits in State Finance Law § 5.

The public benefit corporation framework is a recurring theme in New York administrative law. The Legislature has created dozens of public benefit corporations over the decades, each with its own enabling statute, governance structure, and liability regime. The distinction between a State agency, a public authority/public benefit corporation, and a State board can be subtle, and getting the classification right matters for defense and indemnification.

Citations

• Public Officers Law § 17 (defense and indemnification of State employees).
• Public Officers Law § 17(1)(a) (broad "employee" definition).
• Public Officers Law § 17(4) (procedural requirements for invoking § 17).
• General Construction Law § 66 (definitions of public corporations).
• State Finance Law § 5 (Deferred Compensation Board establishment).
• State Finance Law § 5(1) (Board membership).
• State Finance Law § 5(2) (Board purpose).
• Laws of 1982, ch 547, § 9(b) (Board member compensation).
• Public Authorities Law §§ 152, 202, 552, 577, 1045-c, 1677, 1852, 2433 (entities expressly designated as public benefit corporations; cited for contrast).
• Arts and Cultural Affairs Law § 55.05 (entity designation example).
• Racing, Pari-Mutuel Wagering and Breeding Law §§ 245, 253, 431 (entity designations).
• New York State Chapter, Inc. v New York State Thruway Authority, 88 NY2d 56 (1996) (public benefit corporations legally separate from State).
• Op Atty Gen No. 89-F13 (PBC directors not entitled to § 17 absent express authorization).
• Op Atty Gen No. 88-F10 (entity classification analysis).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/99-F4_pw.pdf

Original opinion text

ARTS AND CULTURAL AFFAIRS LAW § 55.05; GENERAL CONSTRUCTION LAW
§ 66; PUBLIC AUTHORITIES LAW §§ 152, 202, 552, 577, 1045-c, 1677,
1852, 2433; PUBLIC OFFICERS LAW § 17; RACING, PARI-MUTUEL
WAGERING AND BREEDING LAW §§ 245, 253, 431; STATE FINANCE LAW
§ 5; L 1982, CH 547, § 9(b).
Members of the New York State Deferred Compensation Board
are in the service of the State in managing the deferred
compensation plan on behalf of State employees and, therefore,
are "employees" entitled to defense and indemnification under
Public Officers Law § 17.
August 4, 1999

Mr. Paul D. Shatsoff
Administrative Officer
NYS Deferred Compensation Board
2 Empire State Plaza
Suite 1201
Albany, New York 12223-1250

Formal Opinion
No. 99-F4

Dear Mr. Shatsoff:
You have requested our opinion regarding whether members of
the New York State Deferred Compensation Board (the "Board") are
entitled to defense and indemnification under Public Officers Law
§ 17.
Section 17 of the Public Officers Law provides for the
defense and indemnification of State "employees" for acts or
omissions committed in the performance of their public employment
duties. The term "employee" is defined as "any person holding a
position by election, appointment or employment in the service of
the state . . . whether or not compensated." Public Officers Law
§ 17(1)(a). Therefore, entitlement of members of the Board to
defense and indemnification under Public Officers Law § 17
requires a determination of the status of the Board.
The Board derives its identity from section 5 of the State
Finance Law. Section 5 provides, in pertinent part, as follows:
The deferred compensation board is hereby
established, to consist of one member
appointed by the governor, one member
appointed by the temporary president of the
senate and one member appointed by the
speaker of the assembly. The board shall
adopt rules and regulations regarding the
standards and requirements of all deferred
compensation plans established pursuant to
this section, including selection of
financial organizations for investment
purposes. State Finance Law § 5(1).
The Board was formed for the express purpose of establishing
and administering a deferred compensation plan for State
employees. State Finance Law § 5(2). Board members who are also
State employees receive no compensation for service on the Board,
but receive reimbursement for actual expenses incurred in the
performance of Board duties. L 1982, ch 547, § 9(b). Board
members who are not State employees receive a per-diem payment
for services in addition to reimbursement for actual expenses.
Id. Funding for services and expenses of Board members is
provided by an appropriation in the State budget out of the
general fund, State purposes account. Executive Budget, April 1,
1998-March 31, 1999, p 434.
You have informed us that the Board has no paid staff and
that all services, including legal, administrative and financial,
are provided by independent contractors. Additionally, the Board
uses staff from the Governor's Office of Employee Relations, the
Senate and the Assembly when needed for Board purposes.
The Legislature has not characterized the Board as a
particular type of legal entity. Although the Board was not
expressly established as part of a State department or agency, it
also was not designated as a public corporation. A "public
corporation" is a municipal corporation, a district corporation,
or a public benefit corporation. General Construction Law
§ 66(1). Clearly, the Board is not a municipal corporation or a
district corporation. Id., § 66(2), (3). A public benefit
corporation is a "corporation organized to construct or operate a
public improvement." General Construction Law § 66(4). A public
benefit corporation is legally separate from the State. The
Board does not fall within the definition of a public benefit
corporation. Also, the Legislature has expressly designated
entities as "public benefit corporations." See, Public
Authorities Law §§ 152, 202, 552, 577, 1045-c. No such
designation is made for the Board.
It is our opinion that the Board is not an independent
entity separate and apart from the State and that Board members
are "in the service of the state." Consistent with State and
federal law, the Board provides a service to State employees
constituting a part of their terms and conditions of employment.
Provision of this benefit to State employees is service to the
State within the meaning of Public Officers Law § 17. Another
indicia of State service is the appropriation in the State budget
out of the general fund, State purposes account. Additionally,
the Board's enabling legislation, which does not establish the
Board as an entity separate from the State (see, Op Atty Gen
No. 89-F13 and Op Atty Gen No. 88-F10), is in contrast to, for
example, Arts and Cultural Affairs Law § 55.05; Public
Authorities Law §§ 152, 1677, 1852, 2433; Racing, Pari-Mutuel
Wagering and Breeding Law §§ 245, 253, 431, which designate
various boards and other entities performing a public service as
"public benefit corporations." Thus, the Board was created for
the express purpose of establishing and administering a deferred
compensation plan for State employees, is funded by the State
purposes account of the State budget and is not designated by the
Legislature as, or otherwise within the definition of, a public
benefit corporation or other public corporation.
We conclude that members of the New York State Deferred
Compensation Board are in the service of the State in managing
the deferred compensation plan on behalf of State employees and,
therefore, are "employees" entitled to defense and
indemnification under Public Officers Law § 17.

Public benefit corporations are separate and distinct from New
York State. New York State Chapter, Inc. v New York State
Thruway Authority, 88 NY2d 56, 74 (1996). In the absence of
express statutory authority, their directors and employees are
not entitled to defense and indemnification under section 17.
Op Atty Gen No. 89-F13.

We note that Board members seeking defense and indemnification
by the State must comply with the procedural requirements of
section 17(4) of the Public Officers Law.

Very truly yours,

ELIOT SPITZER
Attorney General